Market Outlook Report 2022
Power sector outlook: MENA region goes green
The oil-rich countries of the Middle East region have long been used to cheap electricity, but a need to face up to the challenges of climate change means that governments are having to rethink their approach to power generation.
Power generation across the Middle East and North Africa (MENA) has doubled in the past 15 years, from around 842TWh in 2005 to 1,635TWh by 2020, according to data compiled by BP. The biggest producers of electricity tend to be either the most populous or the richest states in the region, such as Saudi Arabia, the UAE, Iran and Egypt.
But not all countries are faring well. Although electricity access is universal in most parts of the region, a combination of political insecurity, corruption and mismanagement means that some countries trail behind. The World Bank estimates that access to electricity is around 89% in war-torn Syria and 73% in Yemen. The likes of Iraq and Lebanon suffer frequent power cuts as demand frequently overwhelms the inadequate and fragile electricity generation and supply networks.
And while many countries have the advantage of being able to tap into plentiful resources of oil and gas to generate cheap electricity, others such as Jordan, Lebanon and the Palestinian Territories are resource poor.
Even for the oil-rich states, though, the policy considerations are now changing as a result of climate change. While oil and natural gas remain the dominant fuels for power plants across the region, governments are taking significant steps to reduce their reliance on fossil fuels and promote renewable energy instead.
After rising steadily for many years, the amount of electricity generated from oil peaked at 372TWh in 2013 but has since fallen back to 358TWh by 2020. The use of natural gas as a fuel for power plants is still growing, but at a far slower pace than is the case for both solar and wind energy. The amount of electricity generated from natural gas reached 836TWh in 2020, compared to 529TWh in 2010, a rise of 58% over the decade. In contrast, wind-powered electricity generation rose by 760% over the same timeframe to reach 1.9TWh in 2020, while solar powered generation increased by more than 16,000% to 16.4TWh.
While it will clearly be some time before renewable power overtakes fossil fuel generation, the direction of travel seems clear.
These changing dynamics are a recognition of how climate change issues are steadily rising up the regional and global agendas, as was highlighted in the lead-up to the 26th UN Climate Change Conference of the Parties (COP 26) summit in Glasgow in November 2021.
Ahead of the conference, a handful of Middle East governments announced the first net-zero emissions target for the region. The first country to do so was the UAE in October 2021, just a few weeks before the summit began. The Emirati authorities pledged to cut the country’s domestic emissions to net zero by 2050, while also unveiling plans to invest some AED600 billion ($163 billion) in clean and renewable energy sources. Saudi Arabia and Bahrain also announced net zero targets by 2060, and Israel has set a target date of 2050.
Find out about the business opportunities, regulatory environment in the Middle East’s power market in Energy & Utilities’ Middle East and Africa Outlook report.
The future of African power markets
There is a huge gap between supply and demand for electricity across the continent, but also a significant funding gap. As it becomes harder for fossil fuel schemes to raise funding, more attention is being given to renewable energy opportunities across the continent.
Africa is a chronically underpowered part of the world. Across the continent, some 844TWh of electricity was generated in 2020, just 3.1% of the global total, according to data compiled by BP, even though Africa is home to around a fifth of the world’s population. More than half the total was generated in just two countries: South Africa with 240TWh and Egypt with 199TWh.
That leaves most countries with relatively little power, particularly in sub-Saharan Africa where fewer than 47% of people had access to electricity in 2019, according to the most recent data from the World Bank. The situation is far worse in rural areas, where just 27% had access, compared to 83% in urban areas.
North African markets and a few of the more developed, smaller economies are better placed. Mauritius, Seychelles, Egypt and Tunisia all had 100% access and Morocco and Algeria were not far behind. Among the continent’s biggest economies, South Africa had 85% access, while Kenya was at 70% and Nigeria was at just 55%. At the bottom of the league table is South Sudan, with an access rate of just 6.7% and Chad with 8.4%.
The shortage of electricity in many markets provides plenty of opportunities, but they tend to be accompanied by numerous difficulties too, from political instability and other governance issues to economic ones such as unreliable access to hard currency to pay for imports of vital equipment. These challenges mean that private sector capital is often in short supply and, as a result, funding for power projects in Africa often relies on public sector sources.
From 2000 to 2019, Africa received $109bn in public commitments in the energy sector, $50bn of which came in 2010-2019, according to the International Renewable Energy Agency (IRENA). Of the total, almost $64bn was for renewable energy projects, including large hydropower schemes. Most of the capital was provided by international donors, including other governments and development finance institutions (DFIs), using a combination of debt and grants.
The ranks of regular supporters include countries such as China, France, Germany and the UK; multilateral development banks such as the World Bank and the African Development Bank (AfDB); and DFIs such as FMO of the Netherlands and KfW of Germany.
However, far more is needed. According to the G20’s Global Infrastructure Outlook programme, some $1.9 trillion is needed to fund investment in African energy infrastructure between 2018 and 2040, but based on current trends just $1.6 trillion is likely to be forthcoming, leaving an investment gap of some $244bn.
Find out more about the planned projects and investments in Africa’s emerging utilities markets in Energy & Utilities’ Middle East and Africa Outlook report.